Tuesday, June 9, 2009

Imaging Industry Operating Income - How Soft Really?

The newest update of the Imaging Industry Margin Index Report from the Woodford Group spotlights a once unflappable industry finally experiencing the full impact of a turbulent economy. Although the results of the imaging industry trends are dramatically lower this quarter, the downturn is not surprising given the overall state of the economy.   

Industry revenues took a major dive, but were surprisingly not the lowest on record. However, industry margins, taken together, were definitely the lowest ever, and yet some companies still managed to perform well. It’s a challenge to interpret these results, particularly on a macro level, as there are several overlapping factors and influences to take into consideration.

The first and most obvious of these is the belt-tightening that most companies experience in the face of a serious economic downturn. Both at channel and end user levels, restriction on purchasing is strictly enforced, as is tighter inventory control. Secondly, many imaging industry firms are opportunistically restructuring, which affects their bottom lines. The final and perhaps most significant influence on the imaging industry is the shift in usage patterns, specifically a reduction in overall print volumes. This is difficult to quantify because it is overshadowed by the other gating influences. Although all three radically affect revenue and margin, the third influence will likely have the most lasting impact on the industry as a whole.

On an individual company level, the IIMI report identifies some interesting developments, most notably with Ricoh who, for the first time, came in second on the revenue scale. By sustaining only a minimal sequential drop in a volatile economy, Ricoh was able to overtake competitors who traditionally have been strong industry performers, but who have suffered more drastic reductions in revenue. Ricoh has worked to build a broader business which addresses more attractive customer segments, a strategy which is clearly successful and profitable for them.

Other key players experienced shifts in both directions as well, illustrating just how diverse and dynamic the imaging industry remains. Despite ongoing internal costs for restructuring and external market pressures, the ever-resilient imaging industry continues to offer attractive and stable returns, especially as the economy begins to improve and new business opportunities emerge.

The twenty-first consecutive report in the quarterly series, the latest IIMI report provides the most recent data and analysis, highlighting key trends within the imaging industry as a whole, as well as individual strengths and weaknesses of 12 key industry players. Since 2004, the Woodford Group together with their partner, the Photizo Group, has tracked key revenue and profitability metrics of these companies, which represent more than 90 percent of the distributed imaging industry. The Imaging Industry Margin Index Report is available immediately. To purchase a copy as an individual report or as part of a quarterly subscription package, please contact the Woodford Group at www.woodford-group.com or call 1-845-987-6201.

Xerox - Timing the Transition

This is a great opportunity for Xerox and Ursula Burns, though maybe not necessarily in that order.  Ms. Burns is certainly competent and well prepared, but given the current economic situation and imaging industry flux, there is nothing that can be taken for granted.  It remains to be seen whether she can continue the positive trajectory established for Xerox under the stewardship of Anne Mulcahy.  The succession was widely expected, but nonetheless remarkable.  Yet notwithstanding the human interest side of the story, the key point will be to deliver positive results, and the handover of the CEO job seems to be well timed to allow this.  

Xerox has put together an impressive collection of technologies and offerings across the entire spectrum of the imaging market:  desktop, departmental and centralized products and applications, from major accounts served by an established and highly competent direct sales force to small business customers served by a growing network of well supported channel partners, hardware, software, services, consulting, geographic reach, . . .  From the supply side, things look very positive. Except for the economy, this is a great company to inherit.  Yet with just limited improvement in that realm, prospects for Xerox will be looking up.

Anne Mulcahy could certainly have stayed on, but handing over now is a wise move.  The current economic situation knocks down expectations, so there is plenty of upside.  There will be a number of key management and strategic decisions coming up and Ms. Burns is ideally prepared and positioned to take these over quickly and seamlessly.  As an added advantage, the momentum of the company and (soon?) the economy will contribute to an outlook for success.

While this seems to be a good move undertaken at a good time, the only concern we need to mention is that Ms. Burns may have too much of a hardware product focus at a time when visions, strategies and service-oriented products need to be at the forefront.  She may in fact have all the necessary skills, but was not addressing these topics due to her current responsibilities and task-sharing arrangement with Ms. Mulcahy.  We will soon see whether she will grow into these new key areas quickly and effectively.